Spurred in part by major donors, many U.S. not-for-profit (NFP) entities experienced stronger operating results in 2022, despite headwinds from inflation, workforce disruption, and a changing political landscape. Heading into 2023, NFPs face geopolitical instability, surging costs, less favorable credit markets, lingering workforce and supply chain issues, and the prospect of a global recession. Given these challenges, as well as long-standing pressures around mission impacts, efficiency, and digitization, NFP boards and audit committees will once again need to refine their risk-driven agendas.
NFP audit committees can expect their organizations’ financial reporting, compliance, risk, and internal control environments to be tested by an array of challenges in the year ahead, from cyber risks to continued stress in attracting and retaining talent. The increasing complexity and fusion of risks—and their unexpected interconnectedness—put a premium on more holistic organizational risk management and oversight. In this volatile operating environment, demands from donors, grantors, and other stakeholders for action and increased transparency will continue to intensify.
Drawing on insights from our interactions with NFP audit committees and senior executives, we’ve highlighted several issues to keep in mind as audit committees consider and carry out their 2023 agendas:
- Maintain a sharp focus on leadership and talent in finance and other key functions.
- Understand how the organization is managing and reporting on environmental, social, and governance (ESG) risks.
- Keep a watchful eye on the organization’s management of cybersecurity risks.
- Sharpen the organization’s focus on ethics, compliance, and culture.
- Help ensure internal audit is focused on the organization’s key risks—beyond financial reporting and compliance—and is a valuable resource for the audit committee.
- Reinforce audit quality and set clear expectations for frequent, candid, and open communications with the external auditor.
- Take a fresh look at the audit committee’s agenda, workload, and capabilities.